Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025 | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Medicare Actuaries: U.S. Healthcare Spending Will Rise to $5.548 Trillion and 19.9 Percent of GDP in 2025

February 15, 2017
by Heather Landi
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CMS actuaries project that total healthcare spending will rise from $3.358 trillion in 2016 to $5.548 trillion in 2025
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Under current law, national health expenditures are projected to grow at an average annual rate of 5.6 percent over the period 2016-2025 and increase to 19.9 percent of gross domestic product (GDP) by 2025, with total healthcare spending rising to $5.548 trillion in 2025, according to a study authored by the Centers for Medicare & Medicaid Services’ (CMS) Office of the Actuary (OACT).

The study, “National Health Expenditure Projections, 2016-25: Price Increases, Aging Push Sector to 20 Percent of Economy,” was published today as a ‘Web First’ by Health Affairs and authored by Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, Devin A. Stone, Christian J. Wolfe, and Joseph M. Lizonitz, all from the CMS Office of the Actuary. The OACT report also can be found on the CMS site here.

The projections for national healthcare spending in the latest report are slightly more optimistic than a similar report published in the July 2016 issue of Health Affairs, as, in that report, actuaries projected healthcare spending would rise to 20.1 percent of GDP. Yet, by all accounts, the projections are still alarming.

Specifically, the authors noted in the report, “Over the next decade (2016–25), growth in nominal (not adjusted for inflation) national health expenditures (NHE) is projected to average 5.6 percent, outpacing average growth in gross domestic product (GDP) by 1.2 percentage points.”

As a result, the actuaries projected, the percentage of the gross domestic product (GDP) spent on healthcare every year across the U.S. healthcare system would climb from 17.8 percent in 2015 to 19.9 percent in 2025. Thus, the actuaries projected that total spending will rise from $3.205 trillion in 2015 to $3.358 trillion in 2016, then $3.539 trillion by 2017, $3.965 trillion by 2018 and, ultimately, to $5.548 trillion in 2025.

“After an anticipated slowdown in health spending growth for 2016, we expect health spending growth to gradually increase as a result of faster projected growth in medical prices that is only partially offset by slower projected growth in the use and intensity of medical goods and services,” Sean Keehan, the study’s first author, said in a prepared statement in a press release announcing the study. “Irrespective of any changes in law, it is expected that because of continued cost pressures associated with paying for health care, employers, insurers, and other payers will continue to pursue strategies that seek to effectively manage the use and cost of health care goods and services.”

In the study, the authors provide an analysis of their projections: “In 2014 and 2015, when the largest impacts of the major coverage provisions of the ACA were observed, health spending growth averaged 5.5 percent. For the period 2016–25, spending is projected to grow similarly (5.6 percent) but to be largely influenced by changes in economic growth and population aging and not as much by changes in insurance coverage, the study authors wrote. Further, the authors stated, “This expectation leads to slower growth in the use and intensity (or complexity) of medical goods and services, relative to the expansion-related growth of 2014–15. However, medical price growth is projected to quicken in the coming decade compared to recent history, as both overall prices and medical-specific price inflation grow faster.”

According to the report, for 2016, total health spending is projected to have reached nearly $3.4 trillion ($3.358 trillion), a 4.8-percent increase from 2015. The report also found that by 2025, federal, state and local governments are projected to finance 47 percent of national health spending, a slight increase from 46 percent in 2015.

The actuaries’ projections published in this latest study indicate slightly slower growth in U.S. healthcare spending for this time period compared to projections published in the July 2016 issue of Health Affairs. As Healthcare Informatics Editor-in-Chief Mark Hagland noted in his article about the July 2016 Health Affairs study, at that time, actuaries projected the percentage of the GDP spent on healthcare every year across the U.S. healthcare system would grow to 20.1 percent in 2025 with total spending rising from $3.3013 trillion in 2014 to $5.631 trillion in 2025. This latest report from CMS actuaries projects the health share of GDP to rise to 19.9 percent in 2025, slightly under 20 percent, with total spending rising to $5.548 trillion in 2015, about $83 billion lower.

During a press call regarding the study and its findings, a reporter questioned Keehan, an economist in the Office of the Actuary at CMS, about why the spending increase projection in this year’s report was slightly more optimistic than the report last year. Keehan responded, “The growth is projected to be a little bit slower at 5.6 percent, averaging annual growth rate for the projection period. In the report last year, we had 5.8 percent, and the slow growth did account for the slightly lower percentage health share of GPD by 2025. There several smaller reasons, and one reason that I can highlight right now is that growth in medical prices, especially for 2016, 2017 and 2018, were a little bit slower this year, in this report, than in last year’s report.”

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